SEBI issues new rules for dilution of stake in listed entities

Companies looking for the ways to achieve a minimum public shareholding of 25% will now have more avenues to dilute equity.

Till recently, Companies were allowed to dilute promoter holding only through Institutional Placement Programme(IPP), Offer for Sale (OFC) and Follow on Public Offer (FPO).In this way market was very restrictive.

On 16th August, 2012, SEBI permitted promoter to issue bonus and right issue to dilute their stake to meet minimum public holding (25% for private sector companies and 10% for PSU entities).

Generally, In right issue all existing shareholders have a right to apply for shares in accordance with their existing holding where as In case of bonus issue, the companies issue additional shares to all existing shareholders in pre decided ratio as per their current holding. Only public shareholders would be allowed for rights & bonus issue.

The Security market regulator said that listed entities desirous to achieve minimum public share holding requirement through other means or desirous of seeking any relaxation from the available methods may approach SEBI with appropriate details.

As all three options previously allowed have their limitations. In OFS, there is no scope for any negotiated deals; IPPs require minimum 10 investors and FPOs are typically done for larger issuance.